The information provided in this article shows how you must account for VAT if you buy-in and re-sell travel facilities as a principal or an undisclosed agent (that is, acting in your own name).
TOMS is the special name given to businesses that buy-in and re-sell travel, accommodation and certain other services. Traditional tour operators are not under the jurisdiction of this scheme.
An agent who is acting under his own name
Travel agents and tour operators
Agents who have disclosed the fact that they are working as agents of other principal tour operators will be considered as disclosed agents, in such case TOMS is not applicable. However, if some supplies agent discloses to customers, these supplies become disclosed supplies and are not covered under TOMS, also in-house or agency supplies that are made are not considered as margin schemes hence are outside the scope of TOMS, or the supplies that are passed onto other customer for resale are not dealt by TOMS.
VAT under TOMS is different from general VAT treatment where VAT is charged on the full selling price and the VAT on purchases is reclaimed. Under TOMS you cannot reclaim any VAT charged on the travel services or goods you buy in and re-supply, the tax on such goods or services is accounted for in the relevant Member State by the providers of those services.
However, as a tour operator based in the UK, you only account for VAT on the margin you make on your margin scheme supplies, that is, the difference between the amount you receive from your customers and the amount you pay your suppliers.
You can still reclaim, subject to the normal rules, VAT on overheads outside the TOMS.
This means it is a supply of goods or services which are:
- Bought in from another person and re-supplied without material alteration or further processing, and
- Supplied by a tour operator from an establishment in the UK, for the direct benefit of a traveller
A person, including a business or local authority, who receives a supply of a designated travel service, other than for the purpose of re-supply.
Note: If you act as a disclosed agent in the making of margin scheme supplies (that is, you name the provider of the margin scheme supplies), you are not yourself making margin scheme supplies and so you must normally account for any VAT on your commission under the normal rules.
Taxable turnover is regarded as the:
- Total margin on your taxes (including zero-rated) margin scheme supplies, plus
- Full value of taxable (including zero-rated) in-house supplies, plus
- Full value of taxable agency commission, plus
- The full value of any other taxable (including zero-rated) supplies you make in the UK.
Reclaiming VAT under TOMS:
You may reclaim (outside the TOMS):
- UK VAT incurred on your overheads and on purchases relating to your in-house supplies, subject to the normal rules
You cannot reclaim VAT on purchases that you make to re-sell as margin scheme supplies, whether incurred in the UK or another Member State.
Your margin scheme supplies are:
- Standard-rated when enjoyed in the EC (for a list of EC territories, see Notice 725 The Single Market, or
- Zero-rated when enjoyed outside the EC.
If a journey stops inside EC while ends outside EC, then two elements will need to be considered, if the stop is such that travelers cannot break their journey, the journey will be regarded as enjoyed outside the EC, however, if the travelers can break their journey, then the journey needs to be proportioned fairly among the journey enjoyed within the EC and outside EC.
Cash Accounting Scheme cannot be used for the TOMS therefore TAX point needs to be determined, please refer to section 4.14 to 4.17 of the HMRC Public notice 709/5. Or you can contact us for further details.
The flat rate scheme is not allowed under TOMS and is specifically excluded.
VAT invoices cannot be issued for supplies accounted under the TOMS. This is because the amount of output tax charged on a supply will not usually be known at the time the supply is made. VAT can only be determined following the end of your financial year, when the end of the year TOMS calculation has been performed.
TOMS Calculation-Year end:
TOMS calculation is performed at year end when actual position is known. There are two methods of calculation;
- Market Value
- Cost Based
Please contact us for further details of the calculation methods.
Note: The information provided above is for the simplicity of the scheme and is meant to be only a starting point for our clients, it is in no case an alternate of the HMRC guidance and public notices issued. Please visit HMRC website for guidance, or contact us and we can act as your agents.